Market and product

A rebound in the dollar put downward pressure on the base metals yesterday – they closed down an average of 1.5 percent, led by a 3.1 percent correction in lead, while tin eased just 0.4 percent and copper closed down 1.2 percent at $4,550.

Precious metals were pushed lower by an average of 2.2 percent yesterday as the dollar rebounded, gold prices closed at $1,053, having been down to $1,047.80 – holding just above the early December low at $1,046.60.

This morning the base metals are getting some lift with prices up an average of 0.9 percent on volume of 6,582 lots as of 06:49 GMT. Copper is up 1.4 percent at $4,613, aluminium, lead and zinc are up around one percent, tin is up 0.8 percent and nickel is up 0.5 percent.

Precious metals are mixed with bullion prices up around 0.5 percent this morning, with gold at $1,056.80, platinum is unchanged and palladium is off 0.4 percent. We wait to see if gold prices have put in a double bottom, or not.

In Shanghai, the base metals are for the most part firmer with average gains of 0.8 percent, but that is skewed by a four percent gain in tin, while lead is down 1.3 percent, aluminium is up 1.1 percent and copper is up 0.7 percent at Rmb 35,700. Spot copper in Changjiang, is off 0.4 percent at Rmb 35,350-35,450, this has pushed the spread into contango, which may well indicate short-covering on the futures that has lifted futures while physical copper has held back as availability has picked up with the opening up of the arbitrage window. The LME/Shanghai copper arb ratio is at 7.77.

In other metals in China, gold and silver prices are down 0.9 percent, steel rebar is up 1.1 percent, iron ore edged up to $39.40 yesterday, while in global markets Brent crude is around $37.

Equities – were mixed yesterday with the Euro Stoxx 50 up 1.8 percent but the Dow was down 1.4 percent and Asia this morning is mixed after an initial upward reaction yesterday. The Nikkei off 1.9 percent, the Hang Seng, Kospi and ASX 200 are little changed, while the CSI is up 0.3 percent.

Currencies – the dollar’s rebound has now paused with the dollar index at 98.74 after peaking at 99.29 – so the ‘buy the rumour sell the fact’ set-up could still unfold. The euro is at 1.0863, sterling is last at 1.4939, after a low yesterday of 1.4865, euro-sterling is at 0.7271, the aussie is at 0.7145 and the yen is firmer at 121.83.

Emerging market (EM) currencies are weak with the yuan at 6.5554 – this is approaching the August post-devaluation lows, the rouble has dropped below the August lows, last at 71.30, while the rupee, rupiah, ringgit, real and rand are correcting recent weakness.

The economic agenda is fairly light, Japan kept is monetary policy unchanged but did increase the amount of ETFs it would buy, adding 300 billion yen to the three trillion yen of ETFs it currently buys annually. Later we get the EU current account data, US flash services PMI and later FOMC member Jeffrey Lacker is speaking.

Markets still seem to be working out the re-pricing of asset classes in the aftermath of the Fed interest rate rise so prices have not yet become directional again. The base metals dipped yesterday, but are finding some buying today. We are still waiting to see if the ‘buy the rumour sell the fact’ set up on the dollar plays out. If the dollar does weaken then we would expect that to provide some support to commodities. For now weak oil and iron ore prices continue to weigh on sentiment. We are particularly surprised with the fresh weakness in zinc. On balance, we expect dips to be well supported and we wait for a catalyst to prompt rebounds.

Gold prices dipped and tested the lows yesterday, support held and prices are edging higher. Again we would watch the dollar – will the prospect of only a gradual series of rate rises lead to profit-taking.